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Intermediation in Networks

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  • Siedlarek, Jan-Peter

Abstract

This paper studies bargaining and exchange in a networked market with intermediation. Possibilities to trade are restricted through a network of existing relationships and traders bargain over the division of available gains from trade along different feasible routes. Using a stochastic model of bargaining, I characterize stationary equilibrium payoffs as the fixed point of a set of intuitive value function equations and study efficiency and the relationship between network structure and payoffs. In equilibrium, trade is never unduly delayed but it may take place too early and in states where delay would be efficient. The inefficiency arises from a hold-up threat and the inability of bargaining parties credibly to commit to a split in a future period. The model also shows how with competing trade routes as trade frictions go to zero agents that are not essential to a trade opportunity receive a payoff of zero.

Suggested Citation

  • Siedlarek, Jan-Peter, 2012. "Intermediation in Networks," Climate Change and Sustainable Development 128710, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemcl:128710
    DOI: 10.22004/ag.econ.128710
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    Cited by:

    1. Simon Schopohl, 2017. "Information Transmission in Hierarchies," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01491930, HAL.
    2. Elliott, M. & Nava, F., 2017. "Decentralized Bargaining in Matching Markets: Efficient Stationary Equilibria and the Core," Cambridge Working Papers in Economics 1742, Faculty of Economics, University of Cambridge.
    3. in 't Veld, Daan & van der Leij, Marco & Hommes, Cars, 2020. "The formation of a core-periphery structure in heterogeneous financial networks," Journal of Economic Dynamics and Control, Elsevier, vol. 119(C).
    4. Elliott, Matthew L. & Nava, Francesco, 2019. "Decentralized bargaining in matching markets: efficient stationary equilibria and the core," Theoretical Economics, Econometric Society, vol. 14(1), January.
    5. Kotowski, Maciej H. & Leister, C. Matthew, 2018. "Trading Networks and Equilibrium Intermediation," Working Paper Series rwp18-001, Harvard University, John F. Kennedy School of Government.
    6. Bedayo, Mikel & Mauleon, Ana & Vannetelbosch, Vincent, 2016. "Bargaining in endogenous trading networks," Mathematical Social Sciences, Elsevier, vol. 80(C), pages 70-82.
    7. Polanski Arnold & Cardona Daniel, 2012. "Multilevel Mediation in Symmetric Trees," Review of Network Economics, De Gruyter, vol. 11(3), pages 1-23, September.
    8. Han, Lining & Juarez, Ruben, 2018. "Free intermediation in resource transmission," Games and Economic Behavior, Elsevier, vol. 111(C), pages 75-84.
    9. Nava, Francesco, 2015. "Efficiency in decentralized oligopolistic markets," Journal of Economic Theory, Elsevier, vol. 157(C), pages 315-348.
    10. Elliott, Matt & Nava, Francesco, 2019. "Decentralized bargaining in matching markets: efficient stationary equilibria and the core," LSE Research Online Documents on Economics 87219, London School of Economics and Political Science, LSE Library.
    11. Matt Elliott & Francesco Nava, 2015. "Decentralized Bargaining: Efficiency and the Core," STICERD - Theoretical Economics Paper Series /2015/567, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    12. Thành Nguyen, 2015. "Coalitional Bargaining in Networks," Operations Research, INFORMS, vol. 63(3), pages 501-511, June.
    13. BEDAYO, Mikel & MAULEON, Ana & VANNETELBOSCH, Vincent, 2012. "Bargaining and delay in trading networks," LIDAM Discussion Papers CORE 2012046, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    14. Schopohl, Simon, 2017. "Information transmission in hierarchies," Center for Mathematical Economics Working Papers 570, Center for Mathematical Economics, Bielefeld University.
    15. Simon Schopohl, 2017. "Information Transmission in Hierarchies," Post-Print halshs-01491930, HAL.
    16. Fabien Mercier, 2016. "Intermediary networks under the rule of equi-repartition of profits," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(5), pages 39-63, June.
    17. Arnold Polanski & Emiliya Lazarova, 2015. "Dynamic multilateral markets," International Journal of Game Theory, Springer;Game Theory Society, vol. 44(4), pages 815-833, November.
    18. Jan-Peter Siedlarek, 2023. "Making friends meet: network formation with introductions," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(4), pages 1037-1076, December.
    19. Syngjoo Choi & Andrea Galeotti & Sanjeev Goyal, 2017. "Trading in Networks: Theory and Experiments," Journal of the European Economic Association, European Economic Association, vol. 15(4), pages 784-817.
    20. Robert P. Gilles & Marialaura Pesce, 2025. "Structured Production Systems: Viability," Papers 2512.24777, arXiv.org.

    More about this item

    Keywords

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    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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